Update: see below for a major correction.
If Yahoo agrees to the deal with Microsoft, it will be a shotgun marriage, but it will be Google holding the shotgun. —BBCAstonishing offer from Microsoft for Yahoo today. Just revel in the number for a moment: $44.6 billion half cash, 62% premium. That's a lot of cash.
The Yahoo offer has to be considered in the context of Microsoft's offer to aquire Fast Search. Who is Fast? At one time there were just a few real search engines: Inktomi, Altavista, Fast, and Google. Yahoo bought Inktomi and Altavista, digested a couple of years, and narrowed the search market to Yahoo vs. Google. Fast was still around with good technology and brilliant employees but not much mindshare.
At the same time Yahoo was consolidating Microsoft started developing their own search engine. With mixed results; decent technology, no users. Microsoft buying Fast in January was both an admission of their technology limitations and a very shrewd way to pick up a lot of search engine engineers. Now if they buy Yahoo they get the users they need to make their search engine a success, not to mention another group of search engineers, a sophisticated online ad system, and lots of paying advertisers.
If Microsoft succeeds in buying Yahoo it will turn the game from Yahoo vs. Google to Microsoft vs. Google. Will they succeed? I don't know, but it's the kind of bold move they have to try. Vista is failing, Office is getting serious online app competition, Microsoft understands their shrinkwrap business is slowly fading. Ray Ozzie is there to lead the company to online apps and search is the Start button for the Web. Buying Yahoo would be a very smart move for Microsoft at almost any price.
Correction: Half the premise of my blog post is wrong. A former Google colleague gently reminded me that the Fast Microsoft bought is Fast enterprise search, not web search. The web search side of Fast had been bought by Overture (and then Yahoo) several years ago. No doubt there's still smart people at Fast, but the acquisition isn't the online play I thought it was. I still think Microsoft's move on Yahoo makes a lot of sense though.
I stopped working for Google two years ago and have no inside knowledge of these affairs.